Question

If the conventional retail method is used to approximate lower-of-cost-or-market measurement, which of the following describes the proper treatment of net additional markups and markdowns in the cost- retail ratio calculation? O A. Net markups and markdowns should both be excluded OB. Net markups and markdowns should both be included OC. Net markups should be included, and net markdowns should be excluded OD. Net markups should be excluded, and net markdowns should be included

Answer 1

Answer

• Under Conventional retail Method, for calculating the Cost Retail Ratio calculation,
  the Net Markup is ADDED to Beginning inventory and Purchase cost.
• Example

Conventional Retail Method
	Cost	Retail	Cost to Retail Ratio	Working
Beginning Inventory	$          46,000.00	$          81,000.00
Plus: Purchases	$        249,600.00	$        423,000.00
Purchase Returns	$          (7,511.00)	$        (11,350.00)
Freight In	$          15,400.00
Net Markups		$             1,250.00
	$        303,489.00	$        493,900.00
Less: Net MarkDowns		$             3,600.00
Goods Available for sale	$        303,489.00	$        490,300.00
Cost to retail Percentage			61.45%	( 303489 / 493900 ) x 100

• Correct Answer = Option ‘C’
  Net Markup should be INCLUDED, and Net Mark up Should be EXCLUDED.